North American Three-Country Summit... Will Discussions Ignite on IRA Electric Vehicle Hub? (Comprehensive)

[Asia Economy Reporter Jo Yoo-jin] As the United States holds a summit with Canada and Mexico, regions benefiting from the Inflation Reduction Act (IRA), attention is focused on whether concrete agreements regarding electric vehicle (EV) benefits will be reached. Some U.S. automakers, including Tesla, have designated Mexico as a production hub for electric vehicles and are moving to increase production shares there.

According to AP News and others, U.S. President Joe Biden arrived at the National Palace in Mexico City on the afternoon of the 9th (local time) and began the North American leaders' summit schedule with a dinner. The trilateral summit between the United States, Mexico, and Canada will continue for two days until the 10th. This is President Biden’s first visit to Mexico since taking office in January 2021. John Kirby, White House National Security Council (NSC) Coordinator for Strategic Communications, said about the summit, "We hope this will be an opportunity to expand the competitiveness of the North American economy and promote inclusive growth and prosperity."

The summit is expected to focus on the issue of establishing an EV manufacturing base related to the Inflation Reduction Act. Since the U.S. IRA offers subsidies only for North American-made electric vehicles, major U.S. automakers have announced plans to relocate or expand EV production bases to places like Mexico. There is speculation that this summit could serve as a catalyst for follow-up discussions on introducing incentives.

After the end of the North American Free Trade Agreement (NAFTA), Mexico saw a sharp decline in shipments to the U.S., but it is now becoming the biggest beneficiary of the IRA. Amid the global supply chain restructuring triggered by the COVID-19 pandemic, Mexico, which is geographically close to the U.S. and has low labor costs, has rapidly emerged as the top beneficiary. Tesla, the world’s leading EV company, has already chosen Mexico as an EV production base, and other automakers such as Ford and General Motors (GM) are either establishing new factories in Mexico or converting existing internal combustion engine vehicle plants into EV production facilities.

U.S. President Joe Biden stopped by the Texas El Paso border on the 8th (local time) before his visit to Mexico City to directly observe the situation of illegal immigrants. This is President Biden's first visit to Mexico since taking office. [Image source=AP Yonhap News]

Bank of America (BoA) estimates that Mexico could increase its trade volume with the U.S. by up to 30% due to the IRA benefits. As of the end of October last year, the cumulative value of U.S. imports from Mexico was $380 billion (approximately 479 trillion KRW), ranking third after China and the European Union (EU).

However, the tense relationship between President Andr?s Manuel L?pez Obrador, known as a close ally of former President Donald Trump, and President Biden could pose a stumbling block to achieving results at this summit. President L?pez Obrador did not officially recognize Biden’s election victory for about a month after the November 2020 election. In October last year, he boycotted the Summit of the Americas held in Los Angeles (LA) in protest against the exclusion of Cuba, Nicaragua, and Venezuela?three anti-American countries?from the event, further straining relations between the two leaders.

AP News pointed out that the relationship between the two presidents is highly transactional, and Biden’s lack of camaraderie toward L?pez Obrador is a reason why the summit’s outlook cannot be overly optimistic.

Mexico’s issues with illegal immigration and drug trafficking, which are major headaches for President Biden and key agenda items for this summit, are also expected to be variables. Recently, President Biden announced plans to expand the so-called ‘Title 42’ policy, implemented during the Trump administration, to block migrant caravans from Central and South America. The summit’s outcome may also hinge on whether concrete measures to combat drug trafficking, including fentanyl?which causes over 100,000 deaths annually in the U.S.?will be agreed upon.

This content was produced with the assistance of AI translation services.